Company Reports

Jumbo Interactive’s fiscal 2024 underlying EBITDA lifted 30% to AUD 77 million—about 2% above our forecast on strong lottery volumes. Lotteries are crucial to Jumbo, representing over 80% of earnings. But this is also Jumbo’s Achilles' heel. While Jumbo sells tickets to popular lotteries including Powerball and Oz Lotto, the brand equity of these games ultimately lies with wide-moat Lottery Corp. While digital migration is a tailwind for Jumbo, we think Lottery Corp will progressively take share from Jumbo over time, underpinning our no-moat rating for the firm.

Although we expect Jumbo’s core lottery retailing business will keep ceding market share to Lottery Corp.’s The Lott platform, its continued growth is underpinned by a channel mix shift to more lottery ticket sales moving online. Jumbo is principally a digital reseller of Lottery Corp. tickets through its Oz Lotteries platform, generating revenue by charging a premium, typically 10%-30%, on tickets sold. Largely a result of its first-mover advantage, Jumbo has accumulated a sizable customer base of around 4 million, on our estimation, although each year only around 1 million customers make a transaction.

Shares in no-moat Jumbo Interactive have rallied considerably since the record AUD 200 million Powerball lottery in February 2024, notwithstanding a modest pullback in recent weeks. Jumbo is leveraged to the jackpot lotteries, Powerball and Oz Lotto, strategically timing its marketing spending to take advantage of the frenzy in ticket sales around big jackpots. This is set to translate into a strong year for Jumbo. Transaction volumes are tracking slightly ahead of our full-year forecast in the 10 months to April 2024, and we raise our fiscal 2024 volume forecast by 3%. With our revenue margin assumption unchanged, fiscal 2024 revenue and earnings per share increase by around 3% to AUD 151 million and AUD 0.70, respectively. On our forecasts, Jumbo’s earnings are set to lift almost 35% on fiscal 2023 as lottery volumes rebound from an abnormally soft year.

After a soft start to fiscal 2024, Australian lottery volume has improved dramatically. The combination of the AUD 90 million Oz Lotto draw in December 2023 and the record Powerball in January 2024 lifts our near-term volume forecast for Lottery Corp. tickets and, consequently, sales for no-moat Jumbo Interactive. We upgrade our fiscal 2024 revenue outlook by 4% to AUD 147 million; with costs of doing business broadly unchanged, projected fiscal 2024 EPS lifts 6% to AUD 0.68. Our long-run forecasts are intact, and our fair value estimate increases marginally to AUD 13.10 per share.

Although we expect Jumbo’s core lottery retailing business will keep ceding market share to Lottery Corp.’s The Lott platform, its continued growth is underpinned by a channel mix shift to more lottery ticket sales moving online. Jumbo is principally a digital reseller of Lottery Corp. tickets through its Oz Lotteries platform, generating revenue by charging a premium, typically 10%-30%, on tickets sold. Largely a result of its first-mover advantage, Jumbo has accumulated a sizable customer base of around 4 million, on our estimation, although each year only around 1 million customers make a transaction.

Wide-moat Lottery Corp’s lottery volumes are looking soft in the first half of fiscal 2024. We estimate the combined prize pool of Lottery Corp’s three largest lotteries—Powerball, Saturday Lotto, and Oz Lotto—which account for around 75% of lottery segment revenue, is 7% below the previous corresponding period. The biggest drag is from Oz Lotto, down almost 20%. And Powerball is cycling a strong PCP due to the record AUD 160 million jackpot in October 2022.

We expect Jumbo’s core lottery retailing business will keep ceding market share to Lottery Corp’s “The Lott” platform, albeit its continued growth is underpinned by a channel mix shift to more lottery ticket sales moving online. Jumbo is principally a digital reseller of Lottery Corp tickets through its Oz Lotteries platform, generating revenue by charging a premium, typically in the range of 10% to 30%, on tickets sold. Largely a result of its first-mover advantage, Jumbo has accumulated a sizable customer base of around 4 million, on our estimation, although each year only around 1 million customers make a transaction.

We initiate coverage of Jumbo Interactive with a fair value estimate of AUD 12.90 per share. Jumbo is predominantly a retailer of government and charity lottery tickets through its Oz Lotteries platform. As a first mover in Australian digital reselling, Jumbo has been a beneficiary of a channel mix shift toward online lottery ticket sales. However, Jumbo’s lottery retailing business has been ceding share to Lottery Corp’s “The Lott” platform, which offers a near-identical product range but without the 10% to 30% markup that Jumbo applies to its tickets. At current prices, shares in Jumbo screen as modestly overvalued. We think the market may be underestimating the difficulty that Jumbo is likely to face in stemming market share losses to The Lott and mispricing the risks surrounding the renewal of the reselling agreement renewal in 2030.

We expect Jumbo’s core lottery retailing business will keep ceding market share to Lottery Corp’s “The Lott” platform, albeit its continued growth is underpinned by a channel mix shift to more lottery ticket sales moving online. Jumbo is principally a digital reseller of Lottery Corp tickets through its Oz Lotteries platform, generating revenue by charging a premium, typically in the range of 10% to 30%, on tickets sold. Largely a result of its first-mover advantage, Jumbo has accumulated a sizable customer base of around 4 million, on our estimation, although each year only around 1 million customers make a transaction.